International Political Economy with Product Differentiation: Firm-level Lobbying for Trade Liberalization

Abstract

Existing political economy models rely on inter-industry differences such as factor endowment or factor specificity to explain the politics of trade policy-making. However, this dissertation finds that a large proportion of variation in applied tariff rates in fact arises <italic>within</italic> industry in many countries. This dissertation consists of three essays. In Chapter 1, I offer a theory of trade liberalization that explains how product differentiation in economic markets leads to firm-level lobbying in political markets. I argue that while high product differentiation eliminates the collective action problem exporting firms confront, political objections to product-specific liberalization will decline due to less substitutability and the possibility of serving foreign markets based on the norms of reciprocity. Chapter 2 presents empirical analyses focusing on firm-level lobbying in the U.S. I construct a new dataset on lobbying by all publicly traded manufacturing firms in the U.S. after parsing the 838,588 lobbying reports filed under the Lobbying Disclosure Act of 1995. I find that productive exporting firms are more likely to lobby to reduce tariffs, especially when their products are sufficiently differentiated. I also find that highly differentiated products have lower tariff rates. Finally, Chapter 3 broadens the scope of my analysis to explain the large variation in tariffs across countries. Specifically, I collect 2 billion tariff-line data across 181 countries for past 25 years. I find that countries liberalize industries particularly with partners whom they exchange differentiated products within industry. My dissertation challenges the common focus on industry-level lobbying for protection while emphasizing the role of firms in demanding trade liberalization.